Within-Firm Pay Inequality

Mueller, Holger M.; Ouimet, Paige; Simintzi, Elena

doi:10.2139/ssrn.2716315

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Within-Firm Pay Inequality

49 Pages Posted: 17 Jan 2016 Last revised: 23 Jan 2017

See all articles by Holger M. Mueller

Holger M. Mueller

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Paige Ouimet

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Elena Simintzi

Centre for Economic Policy Research (CEPR); University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Date Written: January 17, 2017

Abstract

Financial regulators and investors alike have expressed concerns about high pay inequality within firms. Using a proprietary data set of public and private firms, this paper shows that firms with higher pay inequality – relative wage differentials between top- and bottom-level jobs – are larger and have higher valuations and stronger operating performance. Moreover, firms with higher pay inequality exhibit larger equity returns and greater earnings surprises, suggesting that pay inequality is not fully priced by the market. Our results support the notion that differences in pay inequality across firms are a reflection of differences in managerial talent.

Keywords: income inequality, wage inequality, managerial talent

Suggested Citation: Suggested Citation

Mueller, Holger M. and Ouimet, Paige and Simintzi, Elena, Within-Firm Pay Inequality (January 17, 2017). Available at SSRN: https://ssrn.com/abstract=2716315 or http://dx.doi.org/10.2139/ssrn.2716315